Higher premiums, dearer products to pinch insurance policyholders from April

Both life and general insurance policyholders will face a double whammy from April 1. Not only will a higher proportion of their premium go towards insurance commissions for agents, the prices of products will also go up with a hike in agent remuneration.

The insurance regulator, Insurance Regulatory and Development Authority of India (IRDAI), has made changes in the commission structure that will offer insurance agents remuneration at the rate of 40 percent of the first year premium for pure risk policies in life insurance. Similarly, in the general insurance sector, 15 percent of the motor comprehensive policy premiums will go towards agent commissions.

On the other hand, IRDAI has said that general insurance companies as well as standalone health companies can revise the pricing of the product up to 5 percent (increase or decrease) without having to file a modification of the product. For individual health products too, the commission has been set at 15 percent.

Earlier, whenever a product pricing was revised, it had to be sent to IRDAI for approval before implementation. With this new circular, your premium may go up by 5 percent from April 1 without the insurer having to wait for IRDAI’s nod.

Being a long-term product, IRDAI has created an incentive structure such that those products with a higher tenure help an agent earn a higher rate of commission. For instance, a policy with premium payment term of 5 years will have a first-year commission of 15 percent whereas that with a tenure of 12 years or more will have a first-year commission of 35 percent.

An insurance product’s price is determined by the type of the product, sum assured, features as well as the costs involved including management expenses and commission expenses for intermediary.

For instance, in a life insurance policy if the premium is Rs 20,000 for a term plan, 40 percent of it (Rs 8000) will be paid to the agent as first year commissions. Only the rest will be invested into debt or equity depending on the type of product.

Over and above the premium increases due to changes in agent commission, the Goods and Services Tax (GST) which will be applicable from July 1 may lead to a higher rate of taxation for insurance services.